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Significant State Employee Cuts Inevitable

Future deficits loom large on horizon

Raleigh, N.C. – Substantial payroll cuts for state workers in the upcoming budget are likely unavoidable, according to the latest budget analysis by the Civitas Institute.

The Numbers Don’t Add Up
An examination of current revenue forecasts combined with state employee payroll data suggests state employee payroll is an inevitable target for cuts. Consider the following:

According to the annual Fiscal Research salary survey, budgeted base salary and benefits of state employees totaled more than $13 billion (as of Dec. 2008) – not including any state appropriations for the State Health Plan.

A revenue projection of $17.5 billion for FY 2009-10 leaves a difference of only $4.5 billion with which to finance non-payroll items (not counting federal stimulus funds and the use of various state trust funds).

By comparison, the salary survey indicated budgeted base salary and benefits in Dec. 2007 as $12.5 billion. The FY 2007-08 state budget totaled $20.7 billion, leaving a difference of $8.2 billion with which to fund non-payroll items.

“State employee payroll obligations are the largest single state expenditure,” observes policy analyst Brian Balfour. “With the latest revenue estimates pegging the state deficit at a massive $4.6 billion for the coming year, the harsh economic reality is that current employee payroll levels appear unsustainable.”

“The 0.5 percent cut in state employee salary recently ordered by Gov. Perdue is likely just the beginning. Extended mandatory furloughs, across the board pay cuts or substantial layoffs are likely on the horizon,” added Balfour.

Voters Will Reject Tax Increases
State budget makers have spent themselves into a difficult spot. State employees are a politically powerful group, but implementing tax hikes to help maintain current payroll levels will be widely unpopular at this time.

According to recent Civitas poll results, 68 percent of voters believe the General Assembly should “cut existing programs” in order to balance the current budget, compared to only 16 percent that replied “raise taxes.”

“The public is in no mood to have their taxes raised right now. Elected officials who support tax hikes will put their political future in jeopardy.” said Balfour.